Exactly How Does Credit Repair Work?
Credit repair refers to the process whereby a person hires a third party organization to be their proxy and attempt to get negative/erroneous information eliminated from their credit report.
The Credit Repair Organizations Act formally refers to the businesses that provide these services as Credit Repair Organizations. Federal law controls the billing, advertising, and contractual activities of the credit repair companies.
Most people think of credit repair companies as some mystical agencies that operate in their own mysterious ways. In reality, the credit repair companies use practical solutions and actual laws to boost your credit score from a negative to a positive.
Using Practical Solutions
Credit repair companies do not do magic acts to erase your financial woes with a simple swish of a magic wand. What they actually do is to apply keen financial insight to help clean up your credit report.
A 3-Step Process
To understand how credit repair works, you first have to understand how the negative score happens. Increasing debt and late payments are probably some of the main factors that can pull down your credit score. A credit repair organization simply targets these factors and helps you in rebuilding your FICO score. They typically use a 3-step process:
1. Looking For Errors
As previously stated, it is possible for a credit report to contain errors. These erroneous items will affect your score negatively even though it is no fault of yours. The first step in the credit repair process is to scan through your credit report and isolate any items that should not be there. This could be a debt that you do not owe or a payment that you never made. This initial step is probably the most critical one in the credit repair process since it lays the groundwork for step 2.
2. Contesting The Erroneous Items
This step is all about action. After the credit repair company has isolated all the errors, it then sends the information to the respective lenders. A meeting or a call is used to follow up the information whereby the erroneous items are challenged, discussed and remove from the credit report. In case a lender disagrees with the information, the dispute then moves to a local agency. Everything is done within the confines of the consumer laws that protect citizens.
3. Communicating With The Credit Bureaus
Communicating the changes to the credit bureaus is the third and final step in the process. After the erroneous items have been eliminated from the report, the score will reflect this change. This should be communicated to the respective credit bureaus that subsequently log it in their database.
Communicating With You
Keeping you updated on the various steps they are taking to improve your credit score is another important step of the credit repair process. If you engage the services of a credit repair organization, you should be informed about the actions that it is taking on your behalf.
Tactics to Avoid
Some dishonest credit repair companies use piggybacking, tradelines, jamming, disputing accurate debts, and file segregation as credit repair tactics. However, the Credit Repair Organization Act offers clear guidelines on what credit repair organizations can or cannot do as well as what they must tell you. Never trust a company that advises you to dispute negative remarks or legitimate debts or tells you that they can get you started with a new credit line.
Credit repair is a true and legitimate way to get erroneous/negative items from a credit report. The best way to do credit repair is using a credit repair company. However, be sure to only choose the credit repair companies that work within the confines of the law.